Sharper market participants will fact check everything I write here, so this post will contain less words and more pointers on where to look (in a quiz like format):
1. Firstly, Prada's pistons are starting to fire. Lyst - a fashion platform - which tracks 4.5 million data points per hour has picked up and published on the 6th August 2017 that Prada's brand + sales ranking has climbed to No. 8 (from No. 21). This places Prada ahead of Fendi (owned by LVMH). And what was Fendi's growth rate?
2. Return on capital is swinging upwards. Count the number of stores on prada.com, miumiu.com, church-footwear.com and carshoe.com (excluding Marchesi which reported 3 shops in the 2016 Annual Report). What do you find?
Adjustments made to focus on higher growth, higher margin areas.
Prada Group reported 102 stores in North America & Mexico. This has been adjusted to 93 for Prada/MiuMiu and 1 for Church's.
South America is unchanged.
Africa has been reduced to 1.
Europe (including Italy) reported 220 stores. This has been adjusted to 219 (including Marchesi).
Middle-East has increased from 20 to 25.
Japan has increased from 78 to 80.
Asia ex Japan has increased from 187 to 201.
Notably, Prada has shut 2 expensive stores in HK - namely the Peninsula hotel and IFC.
The generalised assumption from sell-side analysts that cost reductions are over is wrong. Quiz: How much is rent in HK? How many basis points does that lift operating profit?
Moreover, Prada's EBITDA margin in 2015 was 28.1% (peak was 35.4%). But MiuMiu's margin in 2016 was around 0%.
You should have enough data points to figure out the margin swing from point 1, no major surprises in gross margin, flat G&A, flat A&P, cutting underperformers, focusing on high growth/higher margin regions.
3. Mr Bertelli could see most of this from the inside. He knew precisely when leases would expire, he knew the economics of each store, he finally got his way over Mrs Prada with social media, they used Kim Kardashian for the first time in many years, Mr Bertelli commented that she 'had 80 million instagram followers' (now over 100 million) - which is more than the entire Italian population, they made design changes, they embraced newer cultures, he called the bottom in sales and profits.
Furthermore, he purchased shares in May 2017 at an average price of $36.50. See: Prada buys shares, stock moves how?
4. Most sell-side analysts met the company in May 2017. They wrote ~+2% overall growth but ~-2% comparable growth. What happened to the European recovery in June and July 2017? What did the currency do in July 2017?
5. The ~5% strengthening of the RMB from the end of May 2017 will increase purchasing power. Given that May was purportedly soft yet almost flat on a comparable basis, the odds for commentary on positive LFL is starting to look good. Don't forget point 1.
Disclosure: I am/we are long 1913.HK.